Employee Rating

A recent article at the Economist described Uber’s user rating system for drivers as a strategy for supplanting traditional performance management, arguing that these ratings “increasingly function to make management cheaper by shifting the burden of monitoring workers to users.” Uber has an interest in ensuring that customers have a consistently good experience and thus is harmed when drivers perform poorly, but instead of devoting resources to monitoring and managing drivers’ performance, it counts on customers to assess it instead. Meanwhile, the platform gives drivers a strong incentive to earn high marks, “aligning the firm’s interests with those of workers,” with the risk of being deactivated if their average rating falls too low.

This type of outsourced performance rating has expanded outside of the gig economy, the author adds, pointing to the ratings and feedback companies increasingly solicit from customers online after they interact with employees, such as in a customer service call.

As the Economist points out, user ratings systems are an attractive method for crowdsourcing the monitoring of employee performance without having to spend the time, money, and effort of having managers do it themselves. And it’s no surprise that organizations are looking for an easy way out. Our own data at CEB, now Gartner, shows that 55 percent of managers believe performance management is too time consuming, and only 4 percent of HR leaders believe their current process accurately assesses performance. With all the effort that has ostensibly been wasted trying to fix performance management, leaving it up to the wisdom of the crowd sure is tempting.

This makes a lot of sense for Uber, which treats its drivers as contractors and will never need them to perform a task other than driving. Customer ratings may be all the performance information Uber needs to decide whether or not to allow a driver to continue working on its platform. With more conventional models of employment, this usually isn’t an option, so most organizations that choose to integrate user ratings into their performance management process must do so more carefully.

At the Wall StreetJournal last month, Wharton management professor Peter Cappelli challenged executives to think differently about their approach to employee performance and potential. The core of his argument is that these talent processes are less dynamic than the speed of the business. Business needs change, who you work with is different from project to project, expectations evolve, and personal circumstances or other factors can affect an employee’s potential contribution at any given time. Rarely, he argues, is an employee always an A, B, or C player:

Broad categories miss a lot of subtleties, so people’s true talents and strengths often get ignored. They also make it hard to recognize when people improve or stumble in their performance. The notion that good performers are always good also contributes to what psychologist Edward Thorndike called a halo effect, the mistaken belief that if you were an A player in one thing, you will be an A player in another. …

That means we assume A players perform better because they have more ability or talent than the others. But we don’t consider that, for instance, they might have gotten a string of easy projects where they could shine. Or maybe we think they’ve done a good job simply because we expected them to do a good job. Likewise, we assume that people performing poorly in their jobs are C players rather than people who are struggling with problems outside of work or have just been given an impossible assignment. Or again, maybe we judged them as performing worse than they actually did because we expected them to do poorly.

The cornerstone of his advice to solve this very real problem is to assess employees more frequently and objectively. He’s right about that, but this is just one of three things organizations need to do in order to improve their performance management strategies. They must also:

Expand the number of people from whom managers receive feedback. Performance today is more collaborative, interconnected, matrixed and horizontal. In order to better determine the contributions that someone is making, managers need to ask more people.

Make the feedback more forward looking. Rather than simply telling an employee how well they performed in the past, the best managers use past performance as a vehicle for talking about what they should be doing differently in the future. This approach lets managers use performance feedback as a development and evaluation tool.

Perceptions of Amazon’s workforce management took a hit last year when the New York Timespublished a controversial feature alleging that the e-tail giant’s organizational culture was overly competitive and dog-eat-dog, that its performance management practices were hyper-critical, and that employees were effectively encouraged to stab each other in the back to get ahead. Amazon strongly disputed the Times’ characterization of its culture, but since then, the company has taken steps to demonstrate that it cares about its employees, soliciting more feedback about their satisfaction and and piloting programs where teams work part-time with full benefits and others work 30-hour weeks.

One of the main criticisms leveled in the Times piece was of Amazon’s performance review process, which uses “stack ranking” to grade employees on a curve and manage out the lowest performers, and which one organizational psychologist has likened to the “Hunger Games.” Now, GeekWirereports, Amazon is making changes to this system, as many other organizations have done in the past two years:

“We’re launching a new annual review process next year that is radically simplified and focuses on our employees’ strengths, not the absence of weaknesses,” the company confirmed in a statement to GeekWire. “We will continue to iterate and build on the program based on what we learn from our employees.”

The buzz among employees is that Amazon will drop or significantly alter its existing employee ratings program as part of the changes in the broader review process. Amazon currently uses employee ratings as the basis for a forced curve or “stack-rank” system — also known as “rank-and-yank” — a controversial management technique used by companies to get rid of the lowest-performing employees and identify those with the most growth potential.

In the past year or two, many organizations have radically reformed their approach to performance reviews, in some cases ditching them altogether, and in many cases keeping the review but getting rid of performance scores or ratings, as GE became the latest major employer to do in July. On the other hand, our research at CEB has found that removing ratings tends to diminish the quality of the review process and doesn’t help performance; others have questioned this new trend as well. Looking at all the changes going on in this field (and drawing heavily on CEB research!), Knowledge@Wharton considers what’s working, what’s not, and what the future holds for performance management:

While the traditional annual performance review is surely dying, [Peter] Cappelli, who is also director of Wharton’s Center for Human Resources, has a wait-and-see attitude about whether employers will really create a different kind of relationship with employees, or end up doing less performance appraisal and replacing it with nothing instead.

“For a lot of companies that are thinking about this change, they are just copying what other companies are doing,” he says. “We will see a lot of false starts on this thing, and then they will discover their relationship with employees is worse off. The thing I would watch is to what extent this is an ideological battle. Is it all about the money, all about rewarding people — that [this is] how things get done, we have to punish the bad employee and fire them? Is it all about the economic incentive? Or is it much more about relationships and developing people and encouraging them to perform better? It’s an ideological divide that has to do with human nature. And to some extent that’s at the heart of this whole issue.” …

One of the company’s goals now is “managing out dead wood,” aided by performance-management software that helps track and evaluate salaried workers’ progress and quickly expose laggards. Turnover is now about twice as high it was a decade ago, with approximately 10% of U.S. employees leaving annually, voluntarily or not, the company said. Armed with personalized goals for employees and large quantities of data, Kimberly-Clark said it expects employees to keep improving—or else. “People can’t duck and hide in the same way they could in the past,” said [Scott Boston, vice president of human resources].

It has been a steep climb for a company that once resisted conflict and fostered a paternalistic culture that inspired devotion from its workers. …

Good performance management looks backward and forward at the same time. Managers evaluate past performance to identify strengths and weaknesses, guide employees’ development, measure their individual contributions to the organization, and differentiate their rewards. Simultaneously, they must figure out how to drive performance to meet the challenges ahead of their team. At TD Magazine, Marcus Buckingham suggests breaking performance management into these two core components of assessment and acceleration and thinking about them as separate goals:

[I]t is incredibly inefficient to tackle assessment and acceleration together. Take the example of feedback. We think feedback is useful for accelerating performance. But even if it is necessary, what happens when that feedback seeps into the assessment realm? “Hey, everybody needs feedback. Let’s get even more of it. We’re going to aggregate that feedback from your bosses, and even your peers, over the course of the year, so that we can figure out what your performance was like and how to differentially invest in you.” Now we’ve taken feedback from the acceleration bucket and poured it into the assessment bucket. …

Rachel Emma Silverman broke the story at the Wall Street Journal this morning:

A new performance-management system asks employees and managers to exchange frequent feedback via a mobile app called PD@GE, in person or by phone. The messages are compiled into a performance summary at the end of the year. For GE, a longtime standard-bearer for corporate management, the shift reflects the realities of a new work climate in which employees expect more feedback from bosses and peers—companies, in turn, expect employees to act quickly on that feedback. …

Roughly 30,000 GE employees have tried rating-free reviews in the last couple of years. An internal study found that bosses could dole out pay and promotions effectively, and employees and managers preferred the new approach. At a meeting last month, about a dozen senior executives finally decided to dispense with the past practice. Scrapping ratings “led to more meaningful, richer conversations that were not getting distracted by…a label,” said Janice Semper, a GE human-resources executive. She adds that the changes apply to GE’s 200,000 salaried employees. Hourly workers may eventually be included if labor contracts allow.

GE executives had hinted at this last month, saying at the time that they were even thinking about doing away with annual raises. The decision to abandon performance ratings comes amid a trend of major employers from Goldman Sachs to IBM to the Pentagon shaking up their performance review systems to de-emphasize and simplify ratings. Other organizations have done away with ratings altogether, like Accenture, which set this trend in motion last year. As a gigantic employer with outsized influence in the corporate world, GE’s performance management systems have always invited copycats—longtime CEO Jack Welch’s “rank and yank” practice of firing the bottom 10 percent of performers was widely imitated—so this change is likely to resonate beyond the confines of GE itself.

However, GE’s move also comes just as we are finding that eliminating performance ratings isn’t necessarily a good idea.